Written evidence submitted by the Financial Services Compensation Scheme (FSCS)


Online safety and online harms: DCMS Sub-Committee call for evidence


1.0 Overview of FSCS


1.1         The Financial Services Compensation Scheme (FSCS) is the UK-wide compensation

scheme for customers of financial services firms that are unable to meet claims against them. It helps to provide confidence in the UK’s financial services industry by helping customers get back on track when authorised financial institutions go out of business. Last year FSCS paid compensation of £700 million benefiting several tens of thousands of people.


1.2         FSCS welcomes the DCMS Sub-Committee’s call for evidence on online safety and online harms.  Our response will focus on a selection of questions most relevant to FSCS’s interests regarding scams.


2.0              Introduction


2.1              FSCS is a public body set up by Parliament under the Financial Services and Markets Act 2000 (FSMA).


2.2              FSCS helps to promote public confidence in financial services, financial stability, and protects consumers by paying compensation. FSCS compensates customers where they normally would have a civil claim (e.g. negligence) against a firm, but the firm is no longer operating and is unable to pay claims against it. FSCS is operationally independent from, but accountable to, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). It is also independent of Government.


2.3               FSCS is funded by levies on authorised financial services firms and never charges individual consumers for the work it does. In all cases, making a claim for compensation directly to FSCS is a free service.


2.4               Our mission is to help get customers back on track after their authorised financial services firm has failed. We know many customers are under stress and may be vulnerable as they have lost hard-earned savings, and so our aim is to provide an outstanding customer experience.




3.0   FSCS and scams


3.1               Although FSCS is operationally independent of Government and its regulators, FSCS believes it is important to work together with other organisations and to share our data and insights to contribute to the best customer experience and consumer protection.


3.2              FSCS has been working with the FCA, SFO, the Insolvency Service and other agencies to protect FSCS customers from scams as much as possible or prevent misuse of the name of FSCS.

3.3              Our Rules (set by the FCA and PRA) do not allow us to pay out where the individual has not received advice or assistance from a regulated person, even if the fraudster pretended to be regulated, so the victims of these scams can be left financially devastated.

3.4              We provide here by way of example a case-study typical of the type of FSCS-related scams impacting consumers:

A customer in a European country (“Ms. A”) contacted us and explained she had lost tens of thousands of Euros in investments via a broker of dubious credentials (“Mr. B”). He had offered to try to recoup her losses via positions in a foreign exchange platform, again involving an investment of thousands of Euros. At the same time Ms. A was contacted by a man (“Mr. C”) using a fake FSCS identity and spoofed FSCS domain-name, offering FSCS's help to claim compensation for her loss, for a further payment of thousands of Euros. Evidence suggests that Mr B and Mr C are the same person or group of persons, in a web of invented identities spanning several countries.

Ms. A. was very upset and we dedicated many hours to supporting and guiding her. We advised her to cease all contact with the scammers and report the matter to her country’s regulator and her banks. We reported her case to the FCA, the National Cyber Security Centre (NCSC), and a webhost. We also reported the case to Action Fraud.

This case is a lesson in the sophistication of impersonation scam operations and the determination of organised criminal groups to exploit vulnerable consumers to the fullest extent.

4.0 Tech companies’ role and key omissions in the draft Bill

4.1              FSCS believes there needs to be further powers given to regulators to level the playing field against scammers. Broadly speaking, in order for regulators to act more swiftly they need to be granted extra powers to enable greater agility in responding to the threats that scammers pose to consumers. This was stated in the FSCS submission to the DCMS’s Online Harms Bill consultation.

4.2              The ever-increasing volume, sophistication and speed of scamming means that enhancements to existing strategies to combat scams, or the addition of new tactics, will be inadequate on their own to meet the challenge.

4.3              Research suggests 95% of fraud cases reported to Action Fraud went unsolved. Which? states:


Comparing our research with other crime statistics shows that police solve significantly less fraud cases than any other crime group. Alarmingly this comes as fraud offences continue to rise. UK residents are now more likely to be victims of fraud and cybercrime than any type of offence, according to the ONS. Fraud and cybercrime offences are now ten times more common than burglary.”[1]

4.4              The FCA has published over 1,000 warnings about unauthorised firms in 2020 to date, the vast majority regarding fake investment websites [2]

4.5              As the FSCS has experienced, the FCA does not always have the ability to stop online financial harms at their source. For example, the FCA does not have extra powers over social media platforms or search engines that host harmful ads because those providers are not organisations regulated by the FCA.

4.6              Internet service providers, search engines and social media platforms are, in practice, subject to the same requirements as traditional publishers of financial promotions. As such, FSCS recommends that these online providers should need to take steps to ensure that any financial promotions which they host or publish have been approved by a regulator.  We welcome Google’s recent move in that direction, but the effectiveness of that move remains to be seen, and other online platforms need to follow suit.


4.7              We note the Government’s decision not to include financial scams in the scope of the Bill, though we welcome the late inclusion of user-generated fraud. Although FSCS would strongly welcome the inclusion of financial scams in the Bill, we are not insistent on that point, as long as another suitable legislative vehicle can be found as a matter of priority.

4.8              FSCS also suggests further clarity is required on who is responsible for financial promotions. This can either be among the regulators such as the FCA and Advertising Standards Authority (ASA) or among advertising platforms themselves, such as Google Ads. FSCS would like to see the platforms be responsible for the adverts the place on their platforms while oversight remains with the regulators. This may entail making internet service providers legally responsible for the losses of consumers who fall victim to scams advertised on their platforms. The responsible entity/body established by the Bill should work with FSCS and FCA against scams and poor online practices.

5.0 What are the lessons that the Government should learn when directly comparing the draft Bill to existing and proposed legislation around the world?

5.1              Our understanding is, in at least some cases, enforcement powers in the UK against financial crime are not as robust as those in some other markets such as the Security and Exchange Commission in the U.S. and CONSOB in Italy. FSCS believes the UK should aspire to be a world leader and model of best practice against scams, particularly considering the position of the City of London as one of the world’s leading financial centres.

5.2              UK regulators and law enforcements bodies should be given enhanced level of powers in order to take the same robust approach to financial crime as the US Securities and Exchange Commission, amongst others. Among the others is Italy’s Companies and Exchange Commission (CONSOB) who last year announced that it has ordered the blocking of access to six new websites, which were illegally offering financial services. The regulator was able order the blackout under its powers.

6.0 Conclusion

6.1              FSCS welcomes the DCMS’s Sub-Committee’s call for evidence on the Online Safety Bill and have listed a series of recommendations on how the Government may be best placed to tackle some of these issues.


6.2              FSCS strongly supports the consensus across the financial services industry that financial scams must be included in the Online Safety Bill or other suitable legislative vehicle. Currently, the Bill only covers user generated content that leads to scams. This needs to go further and we are unconvinced that existing initiatives by Government and large technology companies will be effective without new legislation. There are currently no incentives on internet platforms to verify the adverts they host, or to check if they are from whom they claim to be. The interconnectedness of scamming operations means that a multi-pronged holistic approach is essential. Including this provision within the Online Safety Bill would enhance its central objective to “make the UK the safest place in the world to be online.”

6.3              FSCS would be happy to follow up with the Committee should they have any questions.

[1] Which?, 24 Sep. 2018

[2] FTAdviser, 3rd Nov 2020